When a business restructures the company, there are major changes that happen within the business. Normally made to improve profitability and efficiency.
Restructuring can include various changes, in different or all departments of a business. They can include operational, legal, financial, and management changes.
When is a company restructure required?
Whilst the idea of completely restructuring a business could sound appealing for some, especially for those who are looking to significantly grow their business financially. It is usually a business that is in financial distress that looks to restructure the business. These measures look at dealing with its debts by restructuring the business.
However, there isn’t a ‘one size fits all approach’ to restructuring a business. Rather the opposite. Each business’s financial position is evaluated and measures are then put in place to deal with the specific circumstances. For restructuring to be deemed successful, stakeholders and key decision-makers of the business must carefully plan how they will execute changes.
Whilst company restructures are usually used for businesses that are in a difficult financial position, they can also be utilised in other circumstances. When external changes can have significant impacts on a business, a restructuring could allow the business to deal with changes, and emerge successful. For example, the coronavirus pandemic changed how millions of companies did business both nationally, and internationally.
Reasons to restructure a company
- Reducing risk
A restructure can remove or alter areas of a business that cause risk, or departments that are causing the business significant financial losses.
- Money saving
Merging companies and restructuring can consolidate and reduce a company’s compliance costs. E.g. corporation tax returns, and preparation of annual accounts and VAT. This consolidation can also reduce overall administration costs and therefore employees needed within a finance department.
- Merging businesses
When two businesses come together, in most cases changes will need to be made to accommodate the merging of the businesses. For example, some departments will be duplicated, or even roles such as MD.
- Moving assets
Transferring assets could be in a business plan. Especially for businesses that are members of a group.
- Future planning
Many family businesses will see ownership of the business transferred to the next generation. This restructure allows for the timing to be selected carefully, with consideration given to the process being completed in the most tax-efficient manner.
- Internal disputes
In many circumstances, businesses are set up by two parties. But as time goes on, internal disputes happen, and this made lead to one party leaving the business. This circumstance can have a negative effect on morale and productivity, so a restructure can effectively resolve a dispute.
A restructure can not only improve internal efficiency, but for investors, this displays a want for improvement and growth. Such changes show external parties that the business isn’t afraid of change, and big changes benefit the businesses in a number of ways.
There are numerous benefits to a company restructure, for both small and large-sized businesses. They allow for significant changes to be made in order to plan and future-proof the business and its profitability. To speak to our Head of Litigation, Iain Bould, please get in touch. Call us at 01782 662424 or email us at email@example.com